Winner Take All

The battle is over and the global system for mobile communication has won the wireless standards war.

The battle is over and the global system for mobile communication has won the wireless standards war. In a coup for Europe, where GSM was bred, the industry has spoken, and it has clearly chosen GSM as the worldwide de facto standard.

It turns out that Verizon Wireless, a stalwart Code Division Multiple Access (CDMA) supporter, is suddenly not so dead set against GSM. Many believe Vodafone Group, part owner of Verizon Wireless, has convinced the U.S. operator to switch to GSM, the technology most used around the globe, when it migrates to third-generation (3G) systems.

Vodafone has good reason to want Verizon Wireless to use GSM: Businesspeople who travel the world frequently choose Vodafone, which has the most wireless properties in the world. But some reports have Vodafone paying $100 million yearly to Deutsche Telekom so that Vodafone customers can roam in the U.S. on Deutsche Telekoms VoiceStream Wireless network. Vodafone customers cant roam onto Verizon Wireless network because CDMA isnt compatible with the global standard.

That incompatibility may be CDMAs downfall. The CDMA Development Group recently said there are nearly 34 million CDMA users in the U.S. and Canada. Subtract Verizon Wireless 27 million customers, and a mere 7 million North American CDMA customers remain.

Unless, of course, what was once unthinkable happens — another European operator with global aspirations buys Sprint PCS and switches the network technology to GSM. Sound hard to believe? It shouldnt be any more unbelievable than Verizon Wireless switching. Without Sprint PCS, the prospects for CDMAs future would grow even dimmer, kept alive only by a couple of Asian operators.

What an ironic twist! The U.S. took a typical free-market stance by allowing operators here to choose whatever technology they wanted. That disparity in the market forced gear developers to split their research budgets among the three technologies used here, slowing progress. Now, the market has naturally gravitated to one standard, resulting in lost time for us — which could have been avoided if our leaders had the foresight of European regulators.

Although CDMA-backer Qualcomm claims it wont be hurt by a Verizon Wireless retreat — it earns patent revenue from both CDMA and GSM 3G standards — the companys credibility has certainly been dealt a blow. "If not the revenues, at least the image of Qualcomm will be hurt," says Eric Kintz, associate partner at Roland Berger Strategy Consultants.